2010 irgr north america presentation financial reform legislation
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8/9/2019 2010 IRGR North America Presentation Financial Reform Legislation
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This is a summary that we believe may be of interest toyou for general information. It is not a full analysis of thematters resente an does not constitute le a advice.
You should consult with counsel to determine applicablelegal requirements in a specific fact situation.
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Goals
Reduce contagion risks from systemically significant financial firms
Including clearer resolution / liquidation process
Enhanced regulation / oversight of -
consumer financial products over-the-counter derivatives
fund advisers
ratings agencies
Align compensation and governance, to avoid excessive risk taking
Reduce risks posed by securitizations
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Status
Obama Administration:
June 2009, released the conceptpaper Financial Regulatory Reform:A New Foundation.
House of Representatives: December 2009, passed the Wall
Street Reform and ConsumerProtection Act.
Senate:
March 15, 2010, Senator Doddintroduced Restoring AmericanFinancial Stability Act of 2010.
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Reduce Contagion / Systemic Risk
Systemic Risk Regulator
Each plan would create a systemic risk regulator Financial Stability Council / Financial Stability Oversight Council
Chair Secretary of the Treasury
Including financial activities of non-bank financial companies
Respond to emerging system-wide risks
Create a liquidation fund ($50 - $150 bn)
Main differences between plans:
Which entities are subject to designation Role of the Federal Reserve
Consequences of designation as significant
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Reduce Contagion / Systemic Risk
Consequences of Being Designated as a Company thatmay be of Systemic Risk:
stricter standards (capital, leverage, liquidity, resolution plan,concen ra on m s, r s managemen , rans er o asse s, ortermination of activities)?
Supervision / regulation as if it were a financial holdingcompany (financial activities)?
wall off financial activities from non-financial activities?
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Reduce Contagion / Systemic Risk
Special Resolution Authority
Would be available if a financial company is determined by Treasury to be in default or danger of default,
failure would have severe adverse effects on US stability oreconomic conditions, and
FDIC assistance would avoid or mitigate the adverse effects
Procedure similar to bank receivership
Can be used only if using the Bankruptcy Code would be
systemically destabilizing Insurance companies are exempt
remain subject to state liquidation laws
Living will / funeral plan7
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Reduce Contagion / Systemic Risk
Volcker-lite
Volcker plan would prohibit depository institution holdingcompanies from
Proprietary trading operations (unrelated to serving customers)
Owning/investing/sponsoring hedge funds and/or private equityfunds
Proposed Senate bill
If systemically important nonbank financial company or BHCdeemed to pose a grave threat to U.S. financial stability, then
restrictions on any activities or operations
proprietary trading investing in or sponsoring hedge funds orprivate equity funds
impose asset sale/breakup
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Regulation | Consumer Protection
Currently, consumer protection diffused among differentfederal and state regulatory agencies
Financial institutions various federal bank regulatory authorities
Non-Financial institutions state agencies and the FTC
Increases consumer protection through:
Minimum standards, disclosures, fair dealing requirements
Creation of a federal consumer financial protection authority
But, significant differences between plans
Independent agency orpart of the Federal Reserve?
Regulatory andenforcement powers?
Preemption of state authority?
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Regulation | OTC Derivatives
CFTC / SEC
supervise the purchase and sale of over-the-counter (OTC) derivatives
Registration requirements for:
swap repositories,
swap ea ers,
major swap participants, and
swap execution facilities
Extraterritoriality
SEC / CFTC may exempt foreign facilities if subject to comparablehome country regulation
limited exclusions for activities outside the United States that do nothave a direct and significant connection in the US
Senate version does not address extraterritoriality
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Regulation | OTC Derivatives
Mandatory trading for many swaps on exchanges or swapsexecution facilities
Major swaps dealers and major swap participants: capital requirements,
margin requirements, recordkeeping requirements, and
reporting requirements
Hinges on definitions of -
swaps dealers major swap participants
However, it is expected that a different version of derivativesprovisions of Senate bill will be presented in full committee
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Regulation | Private Fund Advisers
Registration and Regulation eliminates private adviser exemption from registration under the
Investment Advisers Act of 1940
imposes SEC registration, reporting, and record-keeping obligations on
aimed at hedge funds private equity funds / family offices (Dodd version exempts, House
does not)
exemptions from registration for:
foreign private advisers, advisers to venture capital funds,
advisers to small business investment companies, and
any adviser that acts solely as an adviser to private funds and has
US assets under management of less than $150 million12
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Regulation | Credit Rating Agencies
Heightened regulation greater transparency
disclose procedures, methodologies, fees
reduce conflicts of interest
pro e rom consu ng o compan es a con rac or ra ngs
reduce reliance on credit rating agencies
scrubbing federal regulations that rely on ratings
increased liability
provides investors with a private right of action against agencies
increased Securities Act liability if rating is included in disclosure
SEC given greater enforcement tools / examination powers
mandatory registration (most are already registered with the SEC)
dedicated SEC office
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Regulation | Compensation
Increased Federal role in determining compensation
Say on Pay
must provide shareholders with non-bindingshareholder vote toapprove the compensation of executive
compensat on comm ttee o n epen ent rectors
disclose the relationship between executive compensation andfinancial performance
clawback of erroneously awarded compensation
considered unsafe and unsound practice for a BHC to providean employee, director or principal shareholder withcompensation that is excessive
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Regulation | Corporate Governance
Majority Voting
uncontested elections, majority of votes cast
director must tender resignation if does not reach majority
contested elections, plurality standard
Disclosure of Chairman / CEO Structure disclose why the same or different persons serve as chairman
and CEO
Does not require -
shareholder ratification of classified boards
separate investor votes on severance packages
independent board chairs
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Regulation | Insurance Companies
Creation of a Federal Insurance Office within Treasury Department : Monitor industry and insurance issues
Make recommendations on specific insurance companies becomingsubject to stricter standards
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